New Upcoming Legal Jobs Free Workshop March 11 at 5 PM. Register here

    Question

    X Ltd. is committed to supply 24,000 bearings per annum

    to Y Ltd. on steady basis. It is estimated that it costs 10 paise as inventory holding cost per bearing per month and that the set-up cost per run of bearing manufacture is Rs. 324. What would be the optimum run size for bearing manufacture?
    A 1600 Correct Answer Incorrect Answer
    B 2400 Correct Answer Incorrect Answer
    C 3600 Correct Answer Incorrect Answer
    D 4400 Correct Answer Incorrect Answer

    Solution

    To determine the optimum run size for bearing manufacture, we can use the Economic Order Quantity (EOQ) formula. The EOQ formula is given by: EOQ = √((2 * D * S) / H) Where: D = Annual demand (units) S = Set-up cost per run H = Inventory holding cost per unit per time period Given: Annual demand (D) = 24,000 bearings per annum Set-up cost per run (S) = Rs. 324 Inventory holding cost per bearing per month (H) = 10 paise = 0.10 rupees First, let's convert the holding cost to rupees per year: Holding cost per bearing per year = 0.10 rupees * 12 months = Rs. 1.20 Now, we can plug the values into the EOQ formula: EOQ = √((2 * 24,000 * 324) / 1.20) EOQ = √(15552000 / 1.20) EOQ = √12960000 EOQ ≈ 3,600 bearings (rounded off to the nearest whole number) Therefore, the optimum run size for bearing manufacture would be 3600 bearings. So, the correct option is: 3600.

    Practice Next